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Strategies & Market Trends : Joe Copia's daytrades/investments and thoughts -- Ignore unavailable to you. Want to Upgrade?

To: Investor Clouseau who wrote (19941)	9/24/1999 3:00:00 PM
From: Investor Clouseau	Respond to of 25711

(REUTERS) Fed rate hikes look less likely after stock slide Fed rate hikes look less likely after stock slide By Ellen Freilich NEW YORK, Sept 24 (Reuters) - Sustained stock market weakness would diminish the chance of another Federal Reserve rate hike this year, Fed watchers said on Friday. "So much of the issue for the Fed is getting housing and consumer activity to moderate, and stock prices are much more efficient at doing that than the federal funds rate," said Neal Soss, chief economist at Credit Suisse First Boston Corp. Stocks continued falling on Friday after a sharp 205-point slide on Thursday. The Dow Jones industrial average stood more than 1,000 points below the peak set on Aug. 25, a day after the Fed raised its federal funds and discount rates. "The correction in the stock market certainly would make the Fed more cautious about taking any tightening action at the Oct. 5 meeting," said David Jones, chief economist at Aubrey G. Lanston. Even before the stock market's slide, many economists had concluded the Federal Open Market Committee (FOMC), the policy-making arm of the Fed, was not likely to raise interest rates October 5 as there are few signs of inflation despite a robustly expanding economy. Stock market weakness adds to the factors that argue against another interest-rate hike. "The Fed has been looking at stock prices as an important influence on consumer spending," Jones said. "As stock prices have moved up, that has tended to boost consumer spending. And if stock prices continued down for any period of time, that could moderate consumer demand," he said. The Fed has been trying to slow economic growth to lessen the risk that a strong, demand-led expansion will generate inflation. The Fed has raised interest rates twice this year, most recently on Aug. 24 when it hiked its fed funds rate for overnight inter-bank lending a quarter-point to 5.25 percent and raised the discount rate for direct borrowing from the central bank to 4.75 percent from 4.50 percent. The Fed said at that time that its policy actions, "and the firming of conditions more generally in U.S. financial markets over recent months," should "markedly diminish" the risk of rising inflation going forward. Just days after the August rate hikes, Fed Chairman Alan Greenspan told central bankers at a meeting in Jackson Hole, Wyo. that they must be concerned with the influence of financial markets on the economy and consider the prices of stocks and other assets when setting interest rates. Stock prices can influence economic growth through a "wealth effect" - the notion that consumers spend more when the value of their stock portfolios, homes or other assets rises. Some economists say that with more and more American households owning stocks, the wealth effect's importance in the economic outlook may have grown, suggesting that Fed officials must pay more attention to it. Consumer spending, which accounts for two-thirds of gross domestic product (GDP), has been strong, aided by a very healthy job market and rising stock prices. But economists also said that the impact of the stock market's recent slides on the economy and monetary policy would depend on whether those losses are augmented and sustained. "The question is whether this is a retrenchment of consequence or whether this is the typical correction that has been part of this equity cycle over the last half decade or so," said William Sullivan, senior vice president and chief money market economist at Morgan Stanley Dean Witter. "If we are processing lower equity values in another month or two, there's no doubt that interest rates will be moving decidedly lower and that growth estimates for the new year will be revised down, perhaps fairly sharply," Sullivan said. (( -- N.A. Treasury Desk 212-859-1679)) REUTERS * end of story *